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WHY DO WE NEED A PLAN?FINANCIAL PLANNING
As we ignore to foresee , financial mistakes in our early years have adverse consequences later on. Financial planning is a process which helps the client in achieving his financial goals through proper management of his finances. It helps in setting your priorities and inculcates discipline in your spending habits.
WHY INSURANCE ?
Human life value is the most commonly used methods for calculating the insurance cover. This method takes into account income, expenses, liabilities and assets while calculating either for future needs or the life insurance requirement. It’s the present value (PV) of all future economic contribution made by the insured for his or her family members. If you aren’t adequately insured, it could leave you in financial ruin.
Economic contribution = Annual Income – Income tax paid – Life insurance premium paid for self – self maintenance expenses.
As above if one`s current income is Rs. 6.00 Lacs p.a. and you spend Rs. 1.50 Lacs towards income tax, life insurance payments and self maintenance expenses then your economic contribution towards your family is Rs. 4.50 Lacs (Rs. 6.00 Lacs- Rs.1.50 Lacs). Therefore, your monthly contribution is र 37,500.
This surplus is capitalized at a discounting rate say 8% for the years left for retirement say, 20 years / 240 months
Future Value, in this case is 0
The amount of life cover required as per HLV is Rs. 45.13 Lakhs.
WHY MUTUAL FUNDS AND OTHER SAVINGS ?
Mutual funds are amongst the strong most tax efficient investment options available to investor in India, compared to a lot of other investment options. If we educate ourselves on tax impact of mutual fund investments and plan our mutual fund investments carefully, we will be able to make the most tax efficient investment decisions. You should pay due attention to the impact of taxes on your investments and plan your investments accordingly, so that you achieve your investment objectives by maximizing the post tax returns from your investment.
Remember dividends paid by your mutual fund units are tax free in your hands. The mutual fund company may have to dividend distribution taxes, depending on the income tax provisions, but in your hands the dividends are tax free.